Musk Backslides On Profit Every Quarter Pledge, Will Cut 7% Of Workforce

Tesla shares slide after Elon Musk warned in a blog post that making a profit would be difficult.

Elon Musk sounds a bit more cautious about profitability in his latest Tesla Update. Here are a couple of pertinent snips.

Looking ahead at our mission of accelerating the advent of sustainable transport and energy, which is important for all life on Earth, we face an extremely difficult challenge: making our cars, batteries and solar products cost-competitive with fossil fuels.

I want to make sure that you know all the facts and figures and understand that the road ahead is very difficult.

In Q3 last year, we were able to make a 4% profit. While small by most standards, I would still consider this our first meaningful profit in the 15 years since we created Tesla. However, that was in part the result of preferentially selling higher priced Model 3 variants in North America. In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.

As a result of the above, we unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors. Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. There isn't any other way.

My Mish Talk - Global Economic Trend Analysis blog typically has commentary every day of the week. I am also a contributor to TalkMarkets and a "professor" on Minyanville, a community site focused on economic and financial education.

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